One thousand raffle tickets are sold for 1 dollar each. One price of 800.is to be awarded. Rena Condos purchases one ticket?
Determine her expected value
Determine the fair price of the ticket
1/800
1 dollar
expectedvalue=prizeamount*Prob(winning)
expected value=800*1/1000=.80 dollars
fair price=800/1000
To determine Rena's expected value, we need to calculate the probability of winning the prize and the value of the prize.
1. Probability of winning the prize:
There are 1,000 raffle tickets sold, and one prize is awarded out of those 1,000 tickets. So, the probability of Rena winning the prize is 1 out of 1,000 tickets. This can be written as 1/1,000.
2. Value of the prize:
The prize awarded is $800.
Now, we can calculate Rena's expected value using the formula:
Expected value = Probability of winning * Value of the prize
Expected value = (1/1,000) * $800
Expected value = $0.80
Therefore, Rena's expected value is $0.80.
To determine the fair price of the ticket, we compare the expected value to the actual price of the ticket.
In this case, Rena purchased one ticket for $1. Since her expected value is $0.80, the fair price of the ticket would be less than or equal to $0.80. This means that the ticket is actually overpriced because Rena paid $1 for a ticket with an expected value of $0.80.
Thus, the fair price of the ticket would be less than or equal to $0.80, but it cannot exceed $0.80.